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BA hoisting fares 10% despite steep plunge in profits
Robert Lea, Evening Standard10.11.08
A 10% increase in fares at British Airways sent shares in the flag carrier flying to the top of the FTSE 100 leaderboard today despite a staggering 91% slump in half-year pre-tax profits.
Chief executive Willie Walsh defied the gloom in the industry, pledging BA will make a profit this year as the airline continues with its fuel surcharges, ramping up ticket prices to offset large fuel bills and slumping passenger numbers.
Shares in the airline, which have crashed by two-thirds in the past year, soared today, 21.2p at 151.7p, as the City was caught on the hop by an unexpectedly bullish statement from Walsh.
Despite the fall in earnings in the six months to the end of September - operating profit was down from £567 million to £140 million and pre-tax profit crashed from £616 million to just £52 million - the results thrashed aviation analysts' bearish forecasts.
"This is a good performance given the incredibly difficult trading conditions," said Walsh. "The six-month period will be remembered as one of the bleakest on record."
At the heart of the bounce in BA shares was news that the airline is managing to force through fares rises. Its yields, the money it makes per passenger, have risen 10.5% in the six months, more than offsetting falling volumes. Latest figures for October reveal a 9.2% fall in business and first class and a 3% dive in economy class.
More importantly, that enabled Walsh to raise revenue forecasts for the full year to next March to 4% from 3% and predict a "small operating profit" against previous target of break even for the 12 months
Finance director Keith Williams said BA had been able to increase its fares because of the success of Heathrow's Terminal 5 since its botched opening in March which caused so much controversy.
"We have had an excellent operational performance at Terminal 5 where we have broadly now completed the transfer of our services from the three terminals where we were previously operating," he said. "It is that performance that has enabled us to increase our yields."
Further cost cutting will also help BA avoid the red. It plans to reduce its staffing numbers by more than 1000 at Heathrow from the current 7300 to around 6200 by next April.
Reader views (6)
I recently flew BA from Seattle to Istanbul and was surprised they flew a monster 747 with about 25 passengers inbound. Further, I'm most upset that Ba only provided me with 1400 Mileage Plan Miles to LHR from Seattle and an additional 300 to IST from Terminal 5. I should have received close to 10,000 miles for that trip. I didn't know there was an exchange rate on miles like the dollar.
Next time, I fly Air France or Delta, an airline that will offer me full mileage on my trip.
In all fairness, the outbound trip was competly full.
- George Sandoval, Anchorage, Alaska USA
Anyone at BA ever heard of supply and demand?
- Marianne, SW France
The shares rose because the City believed they had undersold and undervalued them, given the fact that BA thinks it can make a year end profit despite the tough conditions...Two weeks ago they sold them all because of huge fears about BA´s huge pension fund problem...I guess BA is hoping its merger with Iberia and American Airlines goes through next year to help boost profitability and make it less dependent on the London to NY route which will no doubt see a decline in passenger numbers next year...
- Mike, London
Why!? I guess they have not had to fly with BA just like I had recently. Service and their on-board quality is not good anymore! Grumpy staff all of them.
- Georgie, Islington, London
"Crash landing for BA as profits plunge by 90%". So what does the sharemarket do? They send BA shares flying to the top of the leader board. Someone please save me from the idiocy of the sharemarket.
- Len, Perth, Australia
BA has a 91% drop in profit and the share price increases in value? How, why?
- Rob, Farnham, Surrey
